For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Grain and oi l s e e d prices at the ICE Canada futures market closed the week ended Aug. 7 mixed with canola higher. Canola posted moderate gains on the week in the wake of big advances in the Chicago soy complex and talk of Chinese canola bookings. However, as the week went on, it turned out that China booked Ukrainian rapeseed and that trimmed the canola market back. Improved weather also weighed on prices, although lingering frost concerns were not far from traders’ minds and that helped to underpin the market. Farmer selling was also slow during the week and that gave some support, offsetting commercial selling. Trading volumes picked up during the week, but were still not heavy. Exporters and crushers were buyers while commercials were selling with some light elevator company offerings
noted. There was also selling out of Europe.
Western barley futures fell sharply during the week as the cash market dropped back and demand was lacklustre with the import of U. S. dried distiller grains limiting the interest from end users.
Chicago corn and soybean futures ended the week mixed with soybeans seeing strong gains and corn seeing moderate losses. There was considerable positioning ahead of the Aug. 12 USDA supply-demand reports. Soybeans rallied as exceptional export demand lifted the market with China continuing to be a big buyer. There was some small support from weather forecasts calling for hot, dry, stressing conditions for soybeans as they enter their podding stage. However, by week’s end the forecasts indicated that the heat would not stay around very long and selling followed in the bean pit. Corn futures declined on continued talk that the U. S. corn crop would be huge and the yields record level. The heat forecast for the U. S. Midwest was felt to be beneficial for the corn crop as it would bring badly needed heat units. Supporting the market was the exceptional pace of export demand.
U. S. wheat futures tumbled as the lack of strong export interest in U. S. wheat and the favourable outlook for the U. S. spring wheat crop weighed on values. Ideas that global wheat supplies are adequate also pressured the market down. However, there are some concerns about weather and the global wheat crop with dryness an expanding problem in Argentina, Australia and the Black Sea area.
This week is being dominated by Wednesday, August 12th’s USDA supply-demand reports. My column deadline, unfortunately, is ahead of the report and so today we can only look at the attitudes in the trade ahead of the report. I will deal with the numbers next week.
The report has more potential impact than normal on the market outlook as it will include the resurvey of Midwestern farmers to get a stronger idea about corn acres. The expectation is that corn acres will be down about a million acres, but that record-high yields will offset
that and production will actually be higher.
Ahead of the report, several private forecasts were issued with the most significant one coming from Informa Economics. They pegged the corn yield at 157.1 bushels/acre for a total crop, based on Aug. 1 conditions, estimated at 12.554 billion bushels. Informa then went on to say that if weather is normal and the crop has no significant heat or frost problems the “final” yield would likely be 164 bu./acre for a total crop of 12.991 billion bushels.
With U. S. consumption likely to be about 12.6 billion bushels, their August forecast is neutral to the price outlook. However, should their “final” crop estimate turn out to be accurate, then the corn outlook is bearish and we will see corn futures below the US$3/bu. level.
Of course, there are a lot of “ifs” in their second forecast. With the crop as much as six weeks late, frost is a much higher threat this year than in a normal year. In addition, the acreage is going to be very significant.
Informa forecast the U. S. soybean crop at 3.177 billion bushels with a yield of 41.6 bushels. If weather conditions are not threatening, they forecast the “final” crop at 3.322 billion bushels with an average yield of 43.5 bushels per acre.
If the August estimate of 3.177 billion is accurate, then the outlook is friendly as ending stocks will be lower. If the higher number is accurate then the outlook is bearish as ending stocks will climb and U. S. soybean futures will likely drop back to the $8/bu. level.
Like the U. S. soybean crop, canola is at a critical juncture. In July, the grain trade was carrying an estimate of about nine mln to 9.5 mln tonnes for the crop. The arrival of warmer conditions this week has brought a little more optimism to the outlook, but only a few have revised their forecasts up to the 9.5-to 10-mlntonne level.
This past week frost touched, but did not significantly damage, crops in the Edmonton area and in northwestern Saskatchewan. With the crop two to four weeks behind in development, everyone is holding their breath as to the crop outlook.
With canola consumption likely to be over 11 million tonnes, whether the crop is nine million tonnes or 10 million tonnes, ending stocks will drop to tight levels and prices will be firm. If U. S. soybeans fall to $8/bu., canola will still hold a $1/bu. premium to soybeans.
However with all the weather uncertainty in oilseed markets, there is equally a chance for U. S. soybeans to be trading in the $11 to $13/bu range this winter and canola prices would still hold their $1 premium.
Currently, we have the uncertainty of a late U. S. soybean crop in a year that has not been normal, weatherwise, for the Midwest. For both corn and soybeans, we will have to see a second year of a much later-than-normal frost. In addition the monsoon has been erratic in India and that is already lifting vegetable oil markets. While in the South Pacific, a building El Nińo is threatening the palm oil crop.
El Nińo has a mixed impact on the South American soybean crop. Acreage is expected to be up to record levels in Brazil and in Argentina. El Nińo tends to bring very heavy rains, which may be good for the crops where dryness has been a concern. However, in the past it has been equally negative for the crop as the rains associated with El Nińo have washed out the crop.
As you can see, this crop is hardly made and the price outlook is still very, very much an uncertainty.
– Don Bousquet is a well-known market analyst
and president of Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting.